Balloon Mortgage – How To Qualify For It
A balloon mortgage is also known as a fixed-rate mortgage that doesn’t fully amortize at the end of the term, leaving a balloon balance due at end of term. The balloon payment is also known as a balloon mortgage because of its large amount. Balloon mortgage loans are quite common in commercial property than in residential property. This is because in case of a balloon mortgage, there is no certainty of repayment. Hence, the loan amount is large and unsecured.
If borrowers don’t repay the loan, they face foreclosure. However, this is possible only if borrowers to sell their property before the maturity of the loan. If no such sale takes place, the lender has no other choice but to foreclose. Therefore, the lender’s risk is reduced to the maximum extent. When you buy a property using a loan from the market, you are actually loaning money to the seller. At the end of the term, you have to return the amount or your loan.
In case of a balloon mortgage, you can easily get rid of all your loan and save money. But, you have to take care of all the legal formalities, as well as finding a good financial institution for refinance. You can also go for refinancing without taking out another loan. If you are facing problems with your finances, the best option would be to go for a refinance on existing home mortgage. You just need to get rid of the balloon payments and move on.
It is necessary to know how to qualify for these loans. Some people do not qualify because of their bad credit score. There are several lenders available who offer these loans. These lenders provide mortgages to the borrowers who do not qualify for the conventional loans and have their score less than 600.
Homeowners can also refinance their balloon loans. If they are paying more than 20% of their monthly income towards their mortgage, then they can opt for a fixed-rate refinancing to reduce their monthly payments. Most homeowners prefer this option because they can easily pay off their mortgage within a short period of time. The home owners need to keep an eye on the interest rates and monthly payments, and can easily plan their finances to meet the new payment structure.
Once you have decided to refinance the balloon loan, then it is necessary to know about the different types of refinancing. You can choose either fixed-rate or adjustable-rate refinance. Fixed-rate refinance is better for homeowners who have a fixed-rate mortgage and are planning to stay in the same home for a long period of time. For such homeowners, the total interest cost will remain same throughout the life of the loan. However, if they shift to another house, the monthly payment will go up. Adjustable-rate refinance loan on the other hand, allows homeowners to adjust the amount of loan principal over a specified period of time.
The monthly payments on the adjustable rate loan can be set according to your own convenience. It is always good to calculate the long-term monthly payments in order to determine whether they can meet the financial requirements. The long-term mortgage payments can help the homeowner to adjust to a new level of living comfortably. Homeowners should try to understand the basics of setting up a balloon mortgage. It is also important to know what limitations the lender has in determining the borrower’s eligibility for the loan.
The concept of the balloon mortgage is very simple and a bad credit applicant can apply for a mortgage with a maximum loan amount of only $100. A ten-year term is the most common type of term used in this type of mortgage. This term is termed as “level term” because at the end of the term, the mortgage will be at the level of mortgage payment. However, it is very easy to extend the term if the homeowner wishes to do so. The lender may also charge an extra amortization fee for every month the mortgage is taken until the entire balance is paid off.